U.S. Regulator Looking at JPMorgan Clawbacks

U.S. bank regulators will review whether JPMorgan Chase & Co executives should have to give back compensation due to the bank's failed hedging strategy that has produced at least $2 billion in losses, the head of the Office of the Comptroller of the Currency said.

REGULATORS ON HOT SEAT

Wednesday's hearing will provide lawmakers with their first
chance to quiz the regulators responsible for monitoring
JPMorgan, the largest U.S. bank by assets, since the losses were
announced.

Regulators have come under scrutiny for not raising red
flags earlier about the massive hedging strategy that went awry,
despite having more than 100 examiners embedded at JPMorgan.

The OCC regulates JPMorgan's banking activities, while the
Federal Reserve Bank of New York is the primary regulator of
JPMorgan's holding company.

In his prepared testimony, Curry said the value of the
JPMorgan position "deteriorated rapidly" at the end of April and
during the first days of May, after OCC examiners began to
evaluate the trades and strategy at the bank.

In late 2011 and early 2012, JPMorgan revised its strategy
to reduce the amount of protection it had against credit losses
in a stressed global economy, Curry said.

But the instruments the bank chose to make the move were
different from those that had been used originally and the
change introduced new risks, he said. The new threats included
higher liquidity risk, which means the bank might not be able to
easily change the positions.

Curry said that since that time, the OCC has been meeting
daily with JPMorgan managers to re-evaluate the bank's risk
management and what actions JPMorgan should take to reduce the
risk of the positions at issue.

Tarullo, in his prepared testimony, said the Fed is also
paying close attention to the steps the bank is taking to
"de-risk" the portfolio.

OCC examiners have not found activity at other large banks
similar to the scale or complexity of JPMorgan's trading
activity, Curry said.

Lawmakers are expected to press regulators on how the
trading debacle will impact the final version of the so-called
Volcker rule, which is expected to be released in the coming
months.

The Volcker rule prohibits banks that enjoy government
backstops like deposit insurance or access to Fed loans from
trading with their own funds for profit.

The trading crackdown, which was included in the 2010
Dodd-Frank financial oversight law, does provide an exemption
for trades made to hedge risk.

Supporters of the restrictions are pressuring regulators to
tighten the exemption, arguing the JPMorgan losses are evidence
that a draft rule released in October would provide too much
leeway.

Curry said the OCC has not drawn any conclusions about
whether the JPMorgan trades would have fallen under the Volcker
rule.
(Reporting by Dave Clarke and Alexandra Alper in Washington and
David Henry in New York; Editing by Gary Hill and Tim Dobbyn)